Hypergrowth stocks have endured a rough couple of years. While big tech names saw a comeback rally, smaller, high-growth companies struggling through growing pains didn’t get the same lift. I believe that’s because Wall Street is playing it safe, shying away from investing in unprofitable firms with tons of potential. However, this is an opportune time to scoop up some hypergrowth stocks on the cheap. Once these companies showcase sustainable growth and profitability, they can soar and deliver outstanding long-term returns.
The high-interest rates today also make it very difficult for unprofitable startups to expand. Suppose your startup was losing money on its revenue due to marketing and other growth initiatives. In that case, you’d realistically have two options to recoup those losses somewhat sustainably – take on high interest loans or dilute shares through fundraising. Many public companies opt for the latter, hurting existing shareholders. That’s why we’ll focus on hypergrowth stocks with enough cash reserves to self-fund growth, plus a track record of minimizing dilution. Let’s dive into the specifics!
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This Chinese solar company has been under significant selling pressure in recent months, but I believe JinkoSolar (NYSE:JKS) has bottomed out and started a recovery. In my view, this recovery is sustainable in the long run, considering the company is massively undervalued. Not only is JinkoSolar being punished by the broader selloffs in the solar market, but it is also being punished for having high debt.
Yes, I admit that you usually don’t want to put a highly leveraged name into your bag in this environment, but even with the extra weights, JinkoSolar is managing to not only keep its head above water but soar with profits that are growing massively. It is trading at a forward earnings multiple of just 2.6 times, and the forward sales multiple is at 0.10 times. Thus, I see substantial upside from here.
In the latest quarter, JinkoSolar posted earnings per share of $3.52, beating estimates by over 260%. Revenues of $4.36 billion also topped expectations by around $178 million. Naturally, these stellar results didn’t move the stock price much, as Mr. Market seemed obsessed with the company’s debt situation.
Personally, I am not too worried about the debt, and I believe it will come down gradually. Operating income is expanding healthily, coming in at around $888 million in the last 12 months. That brings me immense confidence that JinkoSolar can easily service its debt in the coming quarters.
With module shipments accelerating by over 100% year-over-year last quarter, it seems to me that JinkoSolar is firing on all cylinders. I am of the opinion that sentiment will turn bullish once again as institutions recognize this name’s recovery prospects. Of course, macro headwinds like higher interest rates might limit near-term upside, but over 12-24 months, this stock should deliver outstanding returns from today’s depressed levels.
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I usually avoid writing about AI companies as they have a lot of speculation behind them. However, this avoidance is mostly limited to companies that are purely digital. I believe that as AI grows, most of its application will be in the real world in the long run, and investing in pure AI software companies right now is a little risky, as we still don’t know the headroom for growth regarding LLMs, for example.
That’s why I am bullish on UiPath (NYSE:PATH): it is more of a robotics-oriented AI company and provides software for robots. Robots essentially have infinite headroom for growth right now, and combined with the labor shortages in key blue-collar areas, I think we are going to see a lot of demand for factory robots and similar machines. ChatGPT isn’t going to clean your floor or manage the logistics, but robots certainly will, and UiPath is a great investment into their backend.
I admit that it may look a little on the expensive side, but if we peer out to estimated earnings around five years from now, the forward earnings multiple drops to 25 times. That’s nothing mind-boggling, in my opinion, but my “Buy” rating here is based on the fact that UiPath has been surprising Wall Street’s earnings estimates by massive amounts in the previous quarters. It beat the latest EPS estimate by 172% and by a massive 371% two quarters ago.
I don’t expect such massive beats in the long run (though they are welcome), but I do expect earnings significantly higher than what estimates currently say. As for revenue, it is also expected to almost double in five years. Therefore, I see UiPath stock delivering handsome returns for patient investors, especially on any dips.
Runway Growth Finance (RWAY)
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In the introduction of this article, we talked about funding issues hypergrowth companies face. This stock is not only hypergrowth, but the underlying business supports other growth startups by funding them through venture debt financing, including private businesses. Many business owners see this as a plus point since equity financing will erode their ownership of the business, and they are willing to take on debt from Runway Growth Finance (NASDAQ:RWAY).
Obviously, from the bank failures you’ve seen earlier this year, you would rightfully assume that startups are a risky business, and you may even draw parallels with Silicon Valley Bank. Thankfully, this business is quite profitable, and it has $312 million in liquidity. In comparison, the entire valuation of the company is at $509 million in the stock market.
The stock yields a generous 12.73% and can help you realize juicy returns in a multi-year timeframe. Runway Growth Finance is currently trading at a discount to its book value, making it look compelling from my perspective.
That said, it did report a slight increase in non-performing loans last quarter, which led to the stock selling off. However, personally, I believe much of this risk is already priced in at current levels. As the venture capital environment stabilizes over the next year or so, I expect loan growth as well as asset quality to recover.
Unity Software (U)
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Unity (NYSE:U) has been continuing its sideways trend after a slight uptrend. That’s due to AI’s trendiness cooling down and investors taking a more careful approach to AI-related companies. In my opinion, Unity isn’t really an AI company, though. It is in the gaming industry and has a 30% share in the Game Development category. While the core gaming sector has been in turmoil due to declining advertising revenue and a lack of means of generating profit, with many companies experimenting with freemium models, the game development sector remains relatively healthy.
Unity has seen 68% revenue growth in the latest quarter, and analysts expect it to end the year with 53% sales growth YOY. That growth is expected to trend down quite a bit in the coming years, but with profits expected to drip in starting this year, the current price might be enticing for many investors. Regardless, I would note that there is a little bit more speculation here due to the slowdown in growth.
But if the stars do align, triple-digit gains are definitely achievable in a multi-year investment period. Unity has a solid balance sheet, and it is becoming leaner by cutting costs. Margins are also improving, with the company targeting free cash flow breakeven or positivity next year. Thus, I believe the risk-reward is attractive at current levels.
Gaming is still a rapidly growing industry, and Unity’s tools will remain in high demand. Its recent launch of AI tools also paves the path for innovation and next-gen game development. While uncertainty persists in the near term, personally, I see a massive upside over the next 5-10 years.
Luminar Technologies (LAZR)
Luminar Technologies (NASDAQ:LAZR) has been among the most frustrating names in the EV industry. While LAZR did manage to hold up its stock value and trade sideways for around a year, it has since been in decline, and it trades at just $2.5 as of writing, down from $7 in August. It is definitely a hypergrowth stock with massive room for expansion in the coming years, but the lack of profitability is driving a lot of fear on Wall Street, especially as lidar loses confidence due to the broader EV sector facing a wave of bearishness.
While I do think the stock can go down further from here, I believe lidar has a lot of potential, not only in the EV market but in robotics, too. A lot of growth is expected, and Luminar sees 2023 revenue of around $75 million, or roughly 85% YoY growth, and also expects to reach a positive gross margin on a non-GAAP basis in Q4. Luminar has $321 million in cash as of the latest quarterly release, and it believes that is enough for profitability.
On the other hand, analysts expect around 150% YOY growth for 2024 and 2025 and profitability in 2028. In my opinion, the business can achieve these goals but is definitely at an inflection point. However, if things do turn out as expected, even capturing a small amount of the lidar market can lead to massive gains for Luminar in the long run.
With names like Volvo (OTCMKTS:VLVLY) using its tech and other big auto brands showing interest, I believe LAZR has the potential to be a multi-bagger in the next decade.
The stock has been recovering with a healthy uptrend in recent weeks, as MercadoLibre’s (NASDAQ:MELI) hefty earnings beats and a green balance sheet become more and more compelling. The fintech and e-commerce business has massive headroom in Latin American countries, and as their economies start recovering from the pandemic and post-pandemic ripples, I believe it will continue to grow at a rapid pace.
Latin America has also had a boost in confidence, with Argentina electing Milei as its president. Thus, I see a bright future ahead for MELI stock. Analysts expect earnings growth at nearly 140% this year and grow by 14 times in the next nine years, while revenue is expected to multiply by almost six times. I believe the growth is definitely worth the current premium.
In the latest quarter, MercadoLibre grew revenue by nearly 40% YoY. It also posted $7.16 in EPS, beating estimates by a massive $1.48. Moreover, EBITDA margins hit 18%, showcasing improving profitability. Therefore, in my view, MercadoLibre remains a top pick for long-term investors even after its parabolic rise over the last decade.
Riot Platforms (RIOT)
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The recent cryptocurrency uptrend following the speculated Bitcoin (BTC-USD) ETF launch has made many investors swing towards having a positive outlook on the future of cryptocurrency, especially Bitcoin. That’s because Bitcoin is much more finite and restricted than other cryptos. If you don’t know how Bitcoin works, think of it as a fintech platform, and this payment platform needs energy to run.
People who provide energy through computing power are called “miners,” and they are paid BTC to provide this computing power. Riot Platforms (NASDAQ:RIOT) is one of the biggest Bitcoin miners out there, and the company has been very profitable. I believe it is the creme de la creme when it comes to mining cryptos, as it has a massive stash of BTCs in reserve and lots of liquidity.
Bitcoin is scheduled to cut its mining rewards by half in H1 next year, and that should significantly restrict the supply and boost its price in the long run. This will lead to an appreciation of Riot Platforms’ reserve of Bitcoins. Of course, it is definitely not the safest investment considering how speculative cryptos are, but it can be very rewarding if BTC continues on its current trajectory and RIOT keeps growing its mining business. In the latest quarter, Riot Platforms produced 1,106 Bitcoins and earned $31.2 million in BTC mining revenue. It also has $290 million (excluding its stash of 7,327 in free-of-debt Bitcoin) in the bank as of September’s end.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.